BHP’s project notice has one-year limit

BHP Billiton
must commit to the full expansion of Olympic Dam within a year from the time the indenture agreement signed yesterday passes through the South Australian Parliament.

SA Premier
Mike Rann
said the miner has been given a 12-month “sunset clause" and that it must lodge a project notice with the state within this time frame.

But the state had sought no other commitments around the amount of funding or work that must be done to fulfil BHP’s obligations under the agreement, Mr Rann told reporters yesterday.

The project notice would also require BHP to commit to various other infrastructure and major works required, which Mr Rann said would involve “serious expenditure".

He said the sunset clause proved the government’s resolve to see the Olympic Dam expansion, which has been on the horizon since 2007, without “further delay".

Kevin Foley, the minister assisting the Premier on the development of Olympic Dam, said: “To suggest that we have given in to BHP on everything is a nonsense."

BHP chief executive
Marius Kloppers
confirmed that the board would meet to decide whether to proceed with the expansion project in the first half of 2012.

“We now look forward to having this agreement approved by the South Australian Parliament and then completing the work we need to do to enable the BHP Billiton board to consider this project in the first half of next year," Mr Kloppers said in a statement released by the SA government.

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BHP said yesterday it would spend $US1.2 billion to order items with long lead time, including trucks and accommodation, as well as to progress infrastructure development and early site works for the first phase of the expansion project.

Analysts and the SA government took yesterday’s pre-funding announcement as a strong signal that BHP was finally moving on the expansion project.

Mr Rann and Mr Foley said BHP – which has offered no timetable outside of the board considering the investment – had given a clear indication that it was keen to progress works.

“We didn’t want it to be parked there," Mr Rann said.

The state believes the indenture agreement will also prevent BHP from delaying work even if market conditions deteriorate like they did during the global financial crisis.

Diplomatic cables leaked by Wikileaks reveal that Mr Kloppers told the United States consulate in 2009 that the project would remain on hold until the commodity market outlook improved.

Mr Foley said BHP was obliged to maintain 5 per cent rental vacancy rates around the township of Roxby Downs, where it is expected to try to house the majority of its expanded workforce.

This would help the company manage its costs and attract workers to the mine, but Mr Foley said he would be pleased if the economic benefit of the mine helped generate renewed interest in the South Australian property market.

Macquarie analyst Lee Bowers said he expected BHP to about double its copper production and add an incremental 180,000 tonnes a year in a first stage of development that should start producing ore by 2016.

“On current return metrics, Olympic Dam contributes less than 2 per cent to our present BHP Billiton discounted cash flow valuation – the extremely high upfront capital intensity being the predominant factor," Mr Bowers said in a report.